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Suppose the following bonds are fairly priced: Bond 1: 2-year zero-coupon $1000...

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Finance

Suppose the following bonds are fairly priced:

  • Bond 1: 2-year zero-coupon $1000 bond with 20% required rate of return
  • Bond 2: 4-year $1000 par bond with 90% coupon paid annually

Which bond has higher price elasticity to small changes in interest rates? State your answer with reasons.

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